How to Open a REIT

Updated on Monday 24th April 2023

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Investment funds can take various forms, depending on the assets they hold or administer, as well as on the country they are created in. One of the most popular types of funds available for registration in both onshore and offshore jurisdictions is the Real Estate Investment Fund, shortly known as the REIT.

In the following lines, our magazine presents the main steps to opening a REIT. Depending on the country you choose, you can get in touch with local specialists who can help you. Among these, we recommend the Cayman Islands where you can use the segregated portfolio company (SPC).

The Real Estate Investment Fund or Trust – Characteristics

A REIT is a real estate investment trust that finances or owns rental properties that generate income and pays dividends to its investors.

There are 3 categories of REITs:
  • equity REITs;
  • mortgage REITs;
  • hybrid REITs.

The majority of investors are familiar with equity REITs. They make real estate investments that yield a profit. Mortgage REITs usually engage in buying pre-existing mortgages as well as finance real estate. The third category invests in both types of assets.

If you are interested in opening a Real Estate Investment Fund, there are several countries you can decide on. As onshore jurisdictions, Luxembourg, Liechtenstein and Switzerland are the most common. As offshore countries, the Cayman Islands, the British Virgin Islands and Seychelles can be good options.

How to set up a REIT fund

Investors who want to open REITs must first choose the country they want to register a legal entity in. The selected form and the requirements to obtain the status of REIT depends on the selected state. To have an idea about what this type of fund is, it is worth noting that the largest market for such investments thrive is the United States. Delaware is the state in which such entities also benefit from various tax advantages.

REITs, which are based on mutual funds, combine the capital of many investors. Individual investors can benefit from income from real estate investments without having to invest in, manage, or finance any real estate themselves.

If you want to open a REIT, you can choose one of the countries you can find information on in our magazine and get in touch with the specialists there.

In our magazine, you can also find information about how to start a hedge fund.

The REIT model from the United States

A company must abide by specific Internal Revenue Code (IRC) requirements in order to be eligible to become a REIT. These prerequisites include long-term ownership real estate and the distribution of profits to shareholders.
 To be eligible to become a REIT, a US company must in particular satisfy the following criteria:
  • at least 75% of its assets should be placed in treasury bonds, real estate, or cash;
  • rents, mortgage interest, or sales of real estate must account for at least 75% of its total revenue;
  • at least 90% of the annual taxable income must take the form of shareholder dividends;
  • after the first year of existence, the company must have at least 100 stockholders;
  • 50% of its shares must be divided among at least 5 stockholders;
  • the company must be run by a board of trustees or directors.

If you decide to open a Real Estate Investment Fund in Delaware, you can rely on our partners there.

How many REITS operate in the world?

According to the most recent data gathered for the end of 2021:
  • there were 865 REITs operating worldwide;
  • they accounted for countries that had 5 billion inhabitants;
  • their total market equity cap was US 2.5 trillion.

If you want to set up a REIT fund, you can also choose the Cayman SPC, as the Caymans is a favorable tax jurisdiction.